My Turn: Credit firms need a dose of fairness

By Peter Welch • April 26, 2009

Credit cards are an essential component of modern life. They provide convenience to customers, security to merchants and ease of use to our financial system.

Unfortunately, Visa and Mastercard, which together control more than 80 percent of the credit card market, have done what near-monopolies often do. They've abused their power. That's why some Vermonters find themselves paying upwards of 30 percent in interest rates. It's why bait and switch tactics, unreasonable fees and arbitrary penalties have become commonplace.

Without any sort of oversight or regulation, consumers and small businesses are powerless to gain fair treatment.

This week, as Congress takes up the Credit Cardholders' Bill of Rights, we have a chance to mend this broken system -- to step up and provide fairness to families and small businesses. President Obama's support for this bill, of which I'm a co-sponsor, is a significant step forward and another positive sign that the era of the unrestrained and unregulated financial industry is drawing to a close.

This bill would prevent credit card companies from increasing interest rates on existing card balances; it would require them to give 45 days' notice of all rate increases and to mail billing statements 21 days before they are due; and it would end the unfair practice of double-cycle billing.

These measures are significant, but in my view, we must go further.

That's why I hope this week to amend the Credit Cardholders' Bill of Rights to cap interest rates at 18 percent. Under current law, Visa and Mastercard have the power to charge whatever rates they choose -- and those often soar higher than 30 percent. Such rates would make even the Mafia blush.

Credit card companies are entitled to a fair rate for providing credit to consumers, but at a certain point interest rates go from reasonable to ridiculous. Today's rates are unconscionable in the best of times; as Vermont families struggle to get by, they stand out as utterly shameless.

Consumers are not the only ones bearing the brunt of credit card companies' predatory practices. Vermont's country stores, convenience stores and gas stations are charged 10 cents to 15 cents per credit card swipe, on top of 2 to 3 percent of a sale's total. These charges are far greater than the cost of processing transactions. In fact, 44 percent of the fees paid by merchants are spent subsidizing rewards programs that provide no benefit whatsoever to small businesses.

Business owners have no choice but to pass credit card fees to consumers through higher prices for food, gas and other necessities, costing the average American $300 a year -- $300 that American families simply cannot afford.

This is why I am also proposing legislation that would empower small businesses to demand fairer treatment. My bill would force credit card issuers to fully disclose their fee structures and give the Federal Trade Commission authority to determine whether their terms are deceptive or anti-competitive. Further, it would ban unfair and anticompetitive practices such as passing on charges from rewards cards to small business owners.

It's not at all surprising that the credit card industry is fighting these reforms tooth and nail. During the past eight years they've grown accustomed to getting their own way -- to the sheriff being out of town. It's time for that era to come to a close. Now is our chance to act -- and to act decisively.